Trax Industries is considering the purchase of Duke Manufacturing. Duke is currently a supplier for Trax, and the acquisition would allow Trax to better control its material supply. The current cash flow from assets for Duke is $8 million. The cash flows are expected to grow at 6 percent for the next five years before levelling off to 4 percent for the indefinite future. The weighted average cost of capital used for the valuation of Duke is 9 percent. Duke currently has 3 million shares of stock outstanding and $22 million in debt outstanding. What is the maximum price per share Trax should pay for Duke? O A. $53.181 O B. $63.181 OC. $60.51 O D. $55.85

Trax Industries is considering the purchase of Duke Manufacturing. Duke is currently a supplier for Trax, and the acquisition would allow Trax to better control its material supply. The current cash flow from assets for Duke is $8 million. The cash flows are expected to grow at 6 percent for the next five years before levelling off to 4 percent for the indefinite future. The weighted average cost of capital used for the valuation of Duke is 9 percent. Duke currently has 3 million shares of stock outstanding and $22 million in debt outstanding. What is the maximum price per share Trax should pay for Duke? O A. $53.181 O B. $63.181 OC. $60.51 O D. $55.85

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Optimal corporation wants to expand their manufacturing facilities. They have two choices, first to expand the current site at a cost of $290,000 per year for two years to complete the expansion, or to sell their current site for $1.3 million and purchase a new larger facility at a cost of $900,000 in the industrial zone. If the annual interest rate is 8%, evaluate the cash flows for the two options described above and decide which is the most financially beneficial to the corporation? [Note: you are supposed to show every step of your calculation and interpret the result.] If Optimal corporation wants to factor inflation in their calculations, what is the equivalent nominal interest rate if expected inflation rate is 4% in the coming years? Critically discuss the significance of including the factor of inflation in corporate finance calculations [Note: remember to use Harvard referencing to reference your sources]
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